Text of the Economics Unit IV Review

What is a proportional tax?
Everyone pays the same percentage of their income
What is a progressive tax? A regressive tax?
Higher the income the larger a portion you pay, lower your income the higher a percentage you pay
Identify four major types of taxes.
Individual income, corporate income, property, estate, social security, sales, excise
How does the government pay for current social security benefits?
By taxing those who are working now
What is a tax incentive?
When the government tries to encourage behavior through tax policy (buying a hybrid car, opening a certain kind of business)
How large is the current United States national debt?
over $8 trillion
What is the difference between mandatory & discretionary government spending?
Mandatory: required to spend by law, discretionary: choice over how it is spent
Name three entitlement programs.
Social Security, Medicare, Medicaid, other aid programs (e.g. food stamps)
Name three areas in which states spend most of their revenue.
Education, public safety, transportation, public welfare, arts & recreation
Name three key sources of state tax revenue. Do all states use all of these sources?
Income, property, sales; no
What is the name for the government’s use of taxes and spending to influence the economy? What are the two main types?
fiscal policy; contractionary (cool economy off) & expansionary (help economy grow)
What are the two major fiscal policy models (ways of thinking)? How do they differ?
Demand side and supply side, on the aspect of the economy they focus on manipulating
What era is most closely connected with demand side? Supply side?
Great Depression (New Deal), 1980’s (Reaganomics)
Name two New Deal banking reforms.
FDIC, can’t sell securities, margin & reserve limits
What was the S & L crisis of the late 1980’s?
Many S & L’s went under because of bad loans & help from Congress that loosened their regulations
What major change in Federal banking was caused by the Panic of 1907?
The Federal Reserve System (FED)
Who makes the policy decisions for the FED?
The FED Board of Governors
How many FED district banks are there? Who do they supervise?
12, the member banks in their respective regions
What is the primary influence the FED has over the economy?
They can regulate the money supply by changing interest rates, the reserve ratios, and buying/selling securities
What are the two main services the FED supplies to banks?
Check clearing and short term loans
What is the purpose of an easy money policy?
Boost aggregate demand & stimulate the economy
What is the purpose of a tight money policy?
Cut aggregate demand & cool off the economy (fear of inflation)
What are three of the main tools the FED uses to carry out monetary policy?
Open market operations, changing the discount rate, reserve requirements, margin requirements, moral suasion
Name three factors that limit the effectiveness of monetary policy.
Forecasting, time lags, priorities, lack of coordination, conflicting opinions
What economic policy tries to stimulate growth by focusing government efforts on increasing aggregate demand? Best historical example?
demand side economics, the New Deal
What kind of policies try to improve conditions for producers? What recent president was famous for these policies?
supply side economics, Reagan
Identify three tools governments use to carry out fiscal policy.
Tax rates, tax incentives, gov’t spending, public transfer payments (e.g. unemployment benefits)
What historical pressures led to the modern federal budget process?
Wartime spending, increasing corruption, progressive reform
In a socialist economy, who makes the economic decisions?
Central government
What is a big advantage to a socialist model?
Government ability to direct resources and production toward specific economic needs
What are some advantages of a capitalist model?
Free enterprise allows businesses to make economic decisions
Name three countries that use the socialist model.
Cuba, North Korea, Vietnam
Identify two barriers to international trade.
Tariffs, import quotas, voluntary export restraints
Name two examples of international trade agreements.
NAFTA, the European Union, the World Trade Organization (& GATT), other regional trade agreemenst (like NAFTA)
What is the current balance of trade for the United States? Why?
Trade deficit, demand for foreign oil and consumer products
What is a development plan?
An outline of how a nations resources should be used to meet its economic goals
What is multinational corporation?
A firm that owns production facilities in two or more countries and that usually markets its products worldwide
How do developing nations pay for economic development?
Domestic and international funds
Name 3 suppliers of vast amounts of private capital for development.
Banks, multinational corporations, non-profit organizations
Identify three of the big challenges that face economically developing nations.
limited resources, subsistence economies, low GDP, rapid population growth
What is sometimes controversial about loans from the World Bank?
they dictate the purpose for the money – which is sometimes seen as for the benefit of the wealthy nations
Where were the International Monetary Fund and the World Bank started?
at the Bretton Woods Conference near the end of WWII